* Italy prices new 15-yr bond, 20 bln euros bids placed
* German 2yr yields hit six year lows after sale
* ECB, BoE outlooks spurs latest euro zone bond rally
* Spanish, Irish, Italy yields all at new record lows
(Adds comment, updates prices)
By Emelia Sithole-Matarise
LONDON, May 14 Italian yields fell back to
record lows on Wednesday as a sale of longer-dated bonds in Rome
drew robust interest from investors anticipating fresh European
Central Bank stimulus next month.
Bank of England signals that it was in no hurry to raise
interest rates also reinforced the move lower in borrowing costs
across the credit spectrum, with Spanish and Irish yields
retesting all-time lows and German yields falling to their
lowest in nearly a year.
The relentless demand for euro zone government bonds has
prompted a slew of scheduled and unscheduled debt sales from the
region's issuers this week, seeking to make the most of some of
the lowest borrowing costs on record. Peripheral debt in
particular has benefited from an investor hunt for yield as
returns on core bonds have dwindled.
"It is becoming a virtuous circle for the periphery. The
more they issue, the tighter spreads get," said David Keeble,
global head of fixed income strategy at Credit Agricole.
A clear signal by ECB President Mario Draghi last week that
the bank was poised to ease monetary policy next month to
support the economy has given further impetus to the two-year
rally in lower-rated euro zone bonds.
The bank's package of policy options for the June meeting
includes cuts in all its interest rates and targeted measures
aimed at boosting lending to small- and mid-sized firms, sources
familiar with the measures told Reuters.
Italy received over 20 billion euros of orders for its new
15-year bond allowing it to price 7 billion euros via a
syndicate of banks. The deal followed a strong
auction of 7.25 billion euros of paper on Tuesday, which
included a three-year bond sold at record low yields.
Spain also issued 5 billion euros of an inaugural
inflation-linked bond on Tuesday, after bids topped 20 billion
Rome's longer-dated bond offer advances its aim to take
advantage of the best borrowing costs on record to lengthen the
average life of its debt and avoid the dangerous trap of
short-term refinancing obligations. Earlier in the year, it
issued 2022 and a 2028 bond.
"Demand for peripheral paper is very strong and the Spanish
linker showed 70 percent of the issue was picked up by foreign
investors and the Italian syndication should show a similar
trend," said Commerzbank strategist Michael Leister.
"Overall this is very positive for peripherals and
underscores their funding resilience and the strength of demand
and the fact that Treasuries are very keen to increase the
duration of their debt and diversify the funding base."
Italian 10-year yields fell 4 basis points to
2.90 percent, matching a record low hit last week. Yields pared
some of those gains later in the day, but the rally was tipped
to resume after Wednesday's sale.
Rome is selling the new 15-year benchmark at a yield of 10
basis points above the current bond which yielded 3.47 percent
in the secondary market, a historic low, according
to Reuters data.
At the upper end of the credit spectrum, investors also
snapped up 4.16 billion euros of a new two-year bond, supported
by the ECB easing bets, shrugging off concerns that meagre
returns on offer might undermine demand.
German two-year yields were last 1 basis point
down at 0.10 percent, their lowest levels in nearly six weeks.
German 10-year yields, the benchmark for euro
zone borrowing costs, were 5 bps down at 1.38 percent with the
move gathering pace with falls in UK gilt yields after the BoE's
inflation report prompted investors to push back expectations of
when the Bank would hike rates.
"The inflation report today was also very bond friendly ...
Until we start seeing a pickup in wage pressures in the UK and
U.S. which has been quite absent maybe the bond market is
thinking central banks will remain accommodative for longer,"
said ICAP strategist Philip Tyson.
(Additional reporting by John Geddie; Editing by Jeremy Gaunt)